Studies also show that only about 65% of Hispanics are banked, compared with 96% for the US non-Hispanic population.
Banks are moving into the market in similar ways. US banks with partners in Latin America are tapping their allies for market know-how and “huddling” to create products that appeal to Hispanics – especially Mexicans, who represent about 70% of the Hispanic population. This drive has spawned a growing list of so-called binational debit and credit cards: cards for US-based clients that can be used by their relatives in Mexico. The US client is ultimately responsible for managing the account and payment.
It is now routine for banks in the US to market their services in Spanish. They are latecomers compared with car and food companies in the US, which have been advertising in Spanish for years. Financial education programmes are also sprouting, advising Hispanics on everything from how to open a cheque account to wealth management. “We’re taking the time to build the foundation,” says Liliana Salas-Grip, head of Wells Fargo’s Latino market segment. “People remember who was there to educate you when you didn’t have any money.”
Liliana Salas-Grip, head of Wells Fargo’s Latino Market Segment
The number of Spanish-speaking bank employees is also on the rise. “We’re doing what we should have done a long time ago but didn’t, which is building bilingual capabilities at all levels of the market in the US,” says Rebeca Vargas, head of US Hispanic markets for US-based Citigroup.
Growing attraction
Cynthia Pérez is the type of client banks are thirsting for. The 50-year-old Mexican American, born in San Antonio, co-owns Las Manitas, one of Austin’s most popular diners, where top Texas politicians sit alongside blue-collar locals. She banks with Wells Fargo and is well aware of her attractiveness to banks. “Latinos are the last bastion. There’s a lot of money to be made from us,” Ms Pérez says.
First-generation Hispanics like Ms Pérez tend to be dependable and, typically, include a number of wage earners in the family. They also have purchasing power. According to Celent Communications, a US-based consultancy, the buying power of the US Hispanic population is expected to total $926m in 2007, up from $490m in 2000.
“While we have a mass market strategy, if you look at the Hispanic market and the percentage of Hispanics who are US citizens, it’s about 71%,” says Ms Salas-Grip. “So those in the US who are here illegally, with student visas and the rest, are really the smallest piece of the pie. We’re concentrating on the first generation, people who are English-dominant but are still a part of the Latino culture.”
Money transfers
Another major attraction is the remittances market. Last year, more than $14.5bn flowed from Mexican workers in the US to their relatives back home. Western Union and MoneyGram (both US firms) have traditionally dominated the money-transfer business, cashing in heavily with the commissions made from transactions. But big guns such as BBVA-Bancomer – which currently leads the US-Mexico remittance market for banks, along with Citigroup – are steadily moving in on the market, offering cut-rate transaction fees.
Each bank boasts a competitive edge. Citigroup, the world’s biggest financial firm, capitalises on its heavy presence in Latin America, including its ownership of Banamex, Mexico’s second-largest bank. “We have huge brand recognition thanks to Banamex,” says Ms Vargas. In August, Citigroup also increased its presence along the border by snapping up Texas-based First American.
Products and players
One product that Citigroup is betting on to attract newcomers to the US is its binational credit card. Marketed in California by Commerce Bank, a unit of Banamex, the card allows US customers to name someone in Mexico who can use an additional card up to a predetermined limit set by the US cardholder.
Another major player is Wells Fargo, headquartered in California, which claims to be an old hand at catering to Hispanics. “We’re the largest bank along the border,” says Rick Burciaga, central Texas president of Wells Fargo, who was born in Mexico City but grew up in California. “It’s not that we were better and brighter, but we were more aware.”
Rick Burciaga, central Texas president of Wells Fargo
In Mexico, Wells Fargo, the fifth-largest bank in the US, has partnered with HSBC, which recently took over Banco Vital, a large Mexican bank, to increase the amount of remittances it sends from the US to Mexico. One product, called InterCuenta Express, allows customers to send up to $3000 back home at a cost of $8.
“We’re trying to address the different customer subsets,” says Ms Salas-Grip. “We make sure our staff are bilingual and bicultural and that every merchandise campaign we do is in both English and Spanish.”
North Carolina-based Bank of America, the second-largest US bank, also has a headstart in Hispanic areas. It is the biggest lender to Hispanic-owned businesses and will continue to capitalise on its expertise. It cemented a direct link to Mexico when, in 2002, it acquired 25% of Banco Santander Serfín, Mexico’s third-largest bank, from Spain’s Banco Santander Central Hispano. The banks are now working together to cross-sell products, such as SafeSend, an ATM-based money-transfer service.
A newcomer to the game is Spain’s Banco Bilbao Vizcaya Argentaria (BBVA), a natural competitor given its Spanish skills and cultural insight. BBVA also has the muscle in Latin America to make inroads in the US. Earlier this year, it paid $4bn for the stake of BBVA-Bancomer, Mexico’s biggest bank, that it did not already own. In May, it bought Valley Bank, a tiny southern Californian institution that will give it an inroad to the US Hispanic community. That deal was followed by its decision in September to pay $850m for Laredo National Bancshares, a Texas-based financial group that controls about 25% of the Texas-Mexico border market and is particularly active in lending to small businesses and owners.
“There’s a clear gap to fill,” Vitalino Nafría, head of BBVA’s Americas division, tells The Banker. “But we have the experience of entering 10 Latin American countries, and I think that makes us well positioned to take on the US Hispanic market. We’re embarking on a project with a lot of future for us.”
Like other banks, BBVA is honing in on the mortgage market. Only 48% of Hispanic families in the US are currently homeowners, according to Bank of America. Laredo owns a national mortgage lender, which will not only give BBVA a market opening but also allow for synergies with Hipotecaria Nacional, the large mortgage lender in Mexico that BBVA recently acquired. Hipotecaria National has a small presence in the US but plans to expand. “Part of our strategy in Texas will be to offer basic needs, such as transfers, checking and savings accounts,” says Mr Nafría. “Another part is more mature: to move into credit cards, mortgages and loans – the type of services that appeal to the second and third generations.”
Mortgages are also becoming more flexible. Hipotecaria plans to let Mexicans living in the US make mortgage payments on homes in Mexico. Bank of America is taking into account the financial contribution of extended-family members living in a single home when considering a loan applicant.
Risky business
Pulling newly arrived immigrants into the banking system will be a slow process, however. To speed it up, some banks may be taking risks. In November 2001, Wells Fargo made headlines when it became the first US bank to accept the matrícula consular, an identification card issued by Mexican consulates, as a valid form of identity when opening new accounts and cashing cheques.
However, Texas Governor Rick Perry opposes the use of the cards as legal ID in Texas, saying Mexico still lacks a formal birth registry system to keep track of its citizens.
“Accepting the matrícula came at a difficult time for our nation because of September 11 and security concerns,” says Mr Burciaga. “But we think that the matrícula involves very little risk. Immigrants don’t come here to lie, steal and cheat. They come to work, and this helps them participate in the economy.” Still, large banks will continue to compete with small, loosely-run financial outfits that are less intimidating to people who are new to banks. In Austin’s Hispanic district, the streets are cluttered with Western Union copycats catering to newly arrived immigrants and low-income Hispanics.
On a recent afternoon, Moneyland Check Cashing, run by 24-year-old Michael Valdez, from Mexico City, was bustling. Inside the postage-stamp-sized office, a Virgin de Guadalupe calendar shares wall space with a map of Mexico and a newspaper advertisement for the movie A Day Without a Mexican, which imagines a day in the life of California when the entire Mexican population has vanished. Mr Valdez, who works through bank holidays and stays open late, constantly hops up from his worn chair to greet his regular customers: Hispanics who come to cash cheques and wire money home. Mr Valdez recognises nearly everyone and rarely asks for ID. “I know who to trust,” he says. “I know where they work and who cuts their cheques.”
“I’d like to open an account but I don’t think I can make the minimum amount required. It’s like $200, right?” says Salvador Ramírez, a construction worker who has lived in Austin for seven years and wires about $100 a month to his parents in Guerrero state, Mexico.
At Moneyland, he shows no ID and wires cash home for about the same amount he would be charged at a retail bank – most money-transfer outfits profit from high exchange rates. “A lot of people come in here because it’s not complicated,” says Mr Valdez. “They think it’s best to keep things simple, especially if they are here illegally.”
Under US law, banks are free to decide their own rules on identification and this business is perfectly legal.
Cultural shift
Every banker agrees that a cultural shift is needed to bring newcomers into the banking system. “These folks haven’t grown up in a banking culture,” says Mr Burciaga. “They haven’t connected the dots to see that a bank could be a part of their life and lead to bigger things, like buying a home.”
Ms Vargas at Citigroup agrees. “A lot more financial education is necessary. If you were used to living in a cash culture before, if your parents never had a bank account, then you might behave the same way,” she says.
